FTC, Idaho attorney general: St. Luke’s not complying with court order in Saltzer deal

State and federal regulators say St. Luke’s Health System is not complying with an order to reverse a business deal that two courts have ruled illegal.

Lawyers for St. Luke’s concede it is taking a while for the Boise-based hospital system to unwind its acquisition of Nampa-based Saltzer Medical Group, but that what “seemed like a simple, straightforward process ... has proven not to be so.”

After a 2013 trial, a federal judge in Boise ruled last year that the Saltzer acquisition gave St. Luke’s more control over Nampa’s primary-health market than antitrust laws allow.

In court documents filed Friday, the Federal Trade Commission and the Idaho Attorney General’s Office said they are being told that St. Luke’s will “divest only a fraction of the original Saltzer practice.”

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“We have been provided limited information ... and have heard rumors and hearsay about Saltzer’s current and contemplated future status,” the lawyers wrote. “What we have been told, however, is disturbing.”

SALTZER DOESN’T WANT TO RECONSTITUTE ITSELF

The state and FTC say they are concerned that Saltzer now is a husk of the multispecialty practice that once was desirable to both St. Luke’s and its main competitor, Saint Alphonsus Health System.

Since St. Luke’s was ordered to unwind the deal, Saltzer has been shopped to three potential buyers. One of those three unnamed buyers was interested but walked away after talking with antitrust regulators, St. Luke’s said.

Saltzer has shrunk from more than 50 doctors to about 40 since St. Luke’s bought it in late 2012, mostly because of the acquisition and the ensuing lawsuit.

Eight surgeons left Saltzer before the deal even closed, and six doctors have followed since. “Three of those retired, and three left, in whole or in part, because of the uncertainties caused by this litigation,” lawyers for St. Luke’s said.

At the same time, Saltzer has ceased operating entire branches of patient service — radiology, laboratory testing and physical therapy among them — and transferred them to St. Luke’s.

Asked by the Statesman why those special services were transferred to St. Luke’s instead of remaining under Saltzer’s umbrella — which would have kept the line clearly drawn between Saltzer and St. Luke’s — a lawyer for St. Luke’s said that is not the issue.

She said the sticking point is not that services have been commingled so much that nobody can separate them. It is that St. Luke’s doesn’t know what to do with those services now that Saltzer is no longer interested in them.

TAKEOVER SCRAMBLED LUKE’S-SALTZER EGGS

“We were ordered to divest completely. They were not ordered to take everything back,” St. Luke’s general counsel Christy Neuhoff said in an interview. “It’s one thing to say these two parties cannot be one going forward, but it’s another for either a court or a government agency to actually dictate how a private entity runs its business going forward.”

That means that if Saltzer is spun off into a new, independent practice, the business would be made up of a smaller group of primary care doctors who don’t want to offer the specialties, radiology, laboratory testing and other services Saltzer once did, according to lawyers for St. Luke’s.

The physicians who stayed with Saltzer during the transaction received $9 million to keep, in case the deal fell apart. Saltzer and St. Luke’s lawyers agreed during the trial not to argue that it would be impossible for Saltzer to be reconstituted into a viable, competitive business.

“Part of the problem is you’re talking about people ... not a plant [or] a piece of equipment,” said Jonathan L. Lewis, an antitrust lawyer for Baker Hostetler in Washington, D.C. Lewis is not involved in the case.

And when you’re talking about people-based businesses, it can be tricky to “unscramble the egg” after the businesses have merged, he said.

One possible outcome, according to Lewis, is that St. Luke’s could be required to fund a revival of those services.

“The perfect world is you divest something that’s an ongoing business, it’s self-sustaining,” he said.

ST. LUKE’S KEPT GOING WITH TAKEOVER DEAL

Why did the takeover happen in the first place, if there were questions over its legality?

St. Luke’s bought Nampa-based Saltzer Medical Group at the end of 2012 after being warned not to by the Attorney General’s Office. Saint Alphonsus, also based in Boise; a smaller competitor, Treasure Valley Hospital, in Boise; the FTC and Attorney General Lawrence Wasden sued.

U.S. District Judge B. Lynn Winmill gave St. Luke’s permission to take over Saltzer while the case proceeded. But his permission rested upon St. Luke’s promise that it would be easy to unwind the deal if the court eventually ruled it illegal.

After the trial, Winmill ordered St. Luke’s to “fully divest” Saltzer and unwind the acquisition. St. Luke’s appealed that ruling, and the divestiture was paused during the appeal. St. Luke’s learned April 30 that it had conclusively lost its appeal to the 9th U.S. Circuit Court of Appeals. At that point, the clock started on St. Luke’s submitting a “proposed plan of divestiture” within 10 days, as St. Luke’s had committed to do, according to the FTC and the state.

St. Luke’s is now asking the court to appoint a “master” to figure out what to do with Saltzer.

SALTZER: WE’RE WORKING ON IT

Neuhoff said St. Luke’s tried to engage the state and FTC in discussions about divestiture plans as early as February but never heard back. The FTC and attorney general say both defendants are not being cooperative in handing over information about their plans, their staffing and their finances.

Neuhoff said Saltzer, not St. Luke’s, is refusing to turn over information related to its business. That is because of concerns that Saltzer needs to hide trade-secret information, even from St. Luke’s, if it wants to compete after it is back on its feet.

Lewis said that shouldn’t be “that big of an issue” in an antitrust case. “What’s a little startling to me about this is that ... this stuff happens all the time in litigation, where one side gets information from the other, and there’s protections put in place,” Lewis said.

Saint Alphonsus made an offer to buy Saltzer a few years ago but lost its bid to St. Luke’s. Saint Alphonsus told the Statesman in February that it had “no intentions” to buy Saltzer.

“Saltzer has been working on its divestiture plan for over a year,” Saltzer President Dr. John Kaiser said in an emailed statement. He did not say what Saltzer plans to do, or the steps involved in those plans. “Our physicians and employees are our greatest assets, and they will be involved in all our plans and actions.”